An Overview on Mold – The Latest Challenge to the Construction Industry


December 2, 2002

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By Anthony J. Barron
Thelen Reid Brown Raysman & Steiner LLP

The filing of mold-related cases is on the rise, and recent large jury verdicts and media attention undoubtedly will encourage the filing of even more lawsuits. Virtually every participant in the building industry -- owners, contractors, designers and material suppliers -- faces some potential exposure to mold claims.

There is much uncertainty relating to mold claims. There are no uniform standards for exposure limits, testing and remediation. The linkage between mold exposure and resulting health problems is controversial. The insurability of mold-related claims is in a state of flux. And, while governing bodies at all levels have begun to enact legislation providing for studies of mold in order to eventually set standards, the outcome of these efforts is difficult to predict.

As a result of all of this uncertainty, there is no simple response to the mold litigation phenomenon. It is not always possible to insure against mold-related risks. Mold exposure cannot always be reduced, much less eliminated, by inserting appropriate language into a contract. There are no sure-fire defenses to mold claims. And, governmental regulations currently provide no safe harbor for those attempting to minimize mold-related liability. The absence of a simple solution means that those who face mold-related liability must carefully think through these issues and develop a plan suiting their particular needs. While there is no one-size-fits-all solution, areas to consider include insurance, allocation of the risk by contract, and developing protocols to identify, test and remediate mold. The purpose of this article is to provide an overview of these issues and to identify some proactive steps that can be taken by those in the construction industry.

The Nature of the Problem

Although the emphasis on mold in the courts and in the media is relatively new, mold has always been in our environment. Mold is a naturally occurring type of fungus that requires just two things in order to grow: 1.) a food source; and 2.) sufficient moisture. A variety of construction materials can provide the food source, including ceiling tiles, carpet, insulation and, perhaps most commonly, the paper backing of drywall. The necessary moisture may be provided by a single event -- a broken pipe, for example -- or may result from construction and/or environmental conditions that allow water infiltration or, over time, create condensation or humidity. Mold may grow either through expansion on a moist surface or through the dispersal of spores into the air (sporation).

More than 60,000 separate species of mold have been identified. Plaintiffs commonly refer to penicillium, aspergillus and stachybotrys, among others, as "toxic" molds because such molds release the mycotoxins that plaintiffs contend are associated with the most serious types of mold-related health risks. Other types of molds are frequently referred to as "allergenic" molds and are commonly associated with symptoms such as sneezing or red and irritable eyes.

Mold-related claims arise in a variety of contexts, though they frequently involve personal injury allegations. Public and private owners may face suits from tenants and employees claiming health problems resulting from mold exposure. Litigation on behalf of employees in public buildings -- courthouses, schools and government office buildings -- has been particularly active. Contractors may be sued on the theory that improper construction methods created conditions that led to excessive mold. Design professionals may face claims for failing to incorporate mold prevention into the design or for failing to identify mold during the course of construction. Material suppliers may be sued when their materials allow water penetration or serve as the food source for mold. And while mold litigation most often arises out of personal injury claims, mold can serve as the backdrop for breach of contract or delay claims as well. Finally, the greatest area of activity in mold litigation is in the insurance arena as policyholders seek coverage under general liability and homeowner's policies, among others.

Why Mold Claims Have Skyrocketed

Although there is no doubt that mold claims have skyrocketed in the last two or three years, there does not appear to be a reliable measure of the exact magnitude of the increase. Insurance industry sources -- not necessarily unbiased observers -- estimate annual increases in mold claims of 300 to 1,000 percent over the last several years. Various groups estimate that approximately 10,000 mold-related suits have been filed altogether.

Why have mold claims increased so dramatically, given that mold always has existed in our environment? Not surprisingly, the answer depends on whom one asks.

Plaintiffs' attorneys offer some or all of the following reasons for the surge in mold litigation.

• The relatively new emphasis on making buildings airtight has encouraged exterior cladding systems that enhance energy conservation but have the unfortunate side effect of preventing the effective drying of wet materials.
  
  
• A variety of building materials, including, most significantly, paper-covered drywall provide the food source that mold needs to grow.
  
  
• Increasingly complex designs contribute to the problem as complicated roof angles, curved walls and window walls all increase the possibility of water infiltration.
  
  
• Particularly during the recent building boom, contractors increasingly failed to allow materials to dry properly during the construction process.

By contrast, mold defendants argue that there is nothing particularly new in the construction industry that would justify the meteoric rise in mold claims. The materials blamed for mold growth have been in use far longer than two or three years. There has been no dramatic departure in design or construction methods that could explain the increase in mold claims.

The more dubious observers argue that the growth in mold claims does not signal a new public health risk but rather is the result of a media feeding frenzy (60 Minutes and New York Times features) arising out of a few recent high-profile developments:

• A Texas jury awarded $32 million to Melinda Ballard after her insurance company failed to promptly identify and remediate mold in her 22-room mansion.
  
  
• Ed McMahon, of Johnny Carson fame, filed a $20 million lawsuit after a broken pipe allegedly caused mold growth that killed his dog, Muffin, and left both him and his wife ill.
  
  
• Erin Brockovich, the anti-PG&E crusader, has now embarked on an anti-mold campaign after mold allegedly caused $600,000 in damages to her home.

Both plaintiffs and defendants appear to concede that mold presents the greatest risk, or perhaps the only risk, to those with pre-existing health problems, such as asthma or weakened immune systems. It is possible that the significant increase in such health problems in recent years has created a population more susceptible to mold-related illness and that this at least partially explains the growth in mold claims.

Science: No Clear Standards

Responding to a mold outbreak is not an easy task because there are no generally accepted mold exposure limits. No national or state exposure standards have been adopted although the issue is being studied in some jurisdictions. There does not even appear to be consensus on the types of species that should be considered hazardous. While plaintiffs frequently refer to penicillium, aspergillus and stachybotrys as "toxic," many in the scientific community argue that there really is no such thing as "toxic" molds and that the principal health risks instead arise from unusually high exposures to ordinary, or allergenic, molds.

Nonetheless, there are some basic rules of thumb. Mold may be considered excessive when the mold levels inside the structure are significantly greater than outside background levels or when the species of mold found inside are different than the naturally occurring molds found outside.

There are no clear testing protocols, and as a result, any testing program needs to be developed on a case-by-case basis, taking into account factors such as the building location, the outside environment, the use of the structure, the specific location of the mold and its apparent severity. In each instance, a qualified industrial hygienist or health and safety engineer needs to determine whether to take air and/or surface samples and under what conditions. If air samples are taken, the manner in which the air is circulated (by fan or other method) will influence the test results. Growing a culture from either type of sampling may allow differentiation between species, which may be important in cases of significant exposures. However, the culturing process may take a number of days to complete. One reason that uniform standards are difficult to develop is that test results are only significant when evaluated in the context of outside background levels, which tend to be very site specific.

There are no clear standards for remediation, either. Small amounts of mold typically are removed by application of a bleach solution in connection with efforts to prevent future mold growths (through drying and/or dehumidifying the affected portion of the structure). In most instances, saturated materials should be completely removed. Depending on the severity of the growth, safety precautions for the employees performing the remediation need to be considered.

Medicine: Causation Fiercely Debated

Just as there are no clear standards in mold science, there is a lack of clarity on the medical issues involving mold. No consensus exists as to what health risks are associated with mold. Proponents of mold lawsuits claim that mold exposure can lead to a variety of ailments, including headaches, rashes, respiratory problems, inhibition of the immune system, memory loss and brain damage. In rare cases, deaths have been blamed on mold exposure. Defendants have argued that there is no clear medical link between mold exposure and any of these symptoms. A key issue in mold litigation is whether the link between mold and serious injury has been sufficiently established in the scientific community to allow expert testimony on the subject. This issue has been played out in a number of courtrooms with mixed results.

For example, some courts have allowed testimony as to the link between exposure to molds and adverse health effects. Mondelli v. Kendel Homes Corp., 631 N.W.2d 846, 856 (Neb. 2001) [asthma] and New Haverford Partnership v. Stroot, 772 A.2d 792, 799 (Del. 1999) [cognitive impairments]. By contrast, in the Ballard mansion case, even though there was a $32 million damage award arising out of the insurer's bad faith, the court excluded testimony by plaintiffs' medical experts, finding that plaintiffs had failed to establish the reliability of their proffered testimony as to the causal connection between exposure to mycotoxins and alleged brain damage. Other courts also have excluded expert testimony as to the relationship between mold exposure and claimed resulting health problems. National Bank of Commerce v. Associated Milk Producers, Inc., 22 F.Supp. 2d 942 (E.D. Ark. 1998) [laryngeal cancer] and Davis v. Henry Phiopps Plaza South (New York Supreme Court, New York County, October 11, 2001) [cognitive impairments].

Interestingly, the Center for Disease Control has added to the confusion. In the mid-1990s, CDC found a connection between mold exposure and the deaths, in 1993 and 1994, of several Cleveland area infants from internal bleeding. However, in March 2000, CDC reversed its position and concluded that presently available evidence does not support the link between mold exposure and serious health risks.

Insurance: Uncertainties as to Coverage

Given the substantial uncertainties facing those in the building industry, one might think that insurance was a sensible way to reduce or control the risks associated with mold claims. However, insurability, like other mold-related issues, appears quite uncertain.

Even under policies that do not contain specific mold exclusions, insurance companies may contend that other exclusions preclude coverage for mold-related claims, such as "pollution exclusions," "contamination exclusions," "seepage exclusions," "owned property exclusions," "business risk exclusions," "faulty workmanship exclusions," and "deterioration/wear and tear exclusions." Across the nation, the law is in a state of flux regarding whether such exclusions bar coverage for mold-related claims. For instance, in Lexington Insurance Co. v. Unity/Waterford-Fair Oak, Ltd., 2002 U.S. Dist. LEXIS 3594 (N.D.Tex. 2002), the court found that a "pollution exclusion" precluded coverage for mold-related bodily injury claims while in California Capital Insurance. Co. v. Sacramento Partridge Pointe (California Superior Court, Sacramento County, March 4, 2002), the court came to the opposite conclusion when analyzing a similarly phrased "pollution exclusion."

Insurance companies increasingly are adding "mold exclusions" to liability policies in an attempt to more clearly bar coverage for any type of mold-related claim. For example, just in the last year, the California Department of Insurance reportedly has received more than 250 filings from insurance companies seeking to limit or exclude coverage for mold claims. Some major insurers even have withdrawn from the market for homeowners' policies in some states, allegedly because of the spiraling increase in mold claims.

Regulation: First Steps are Under Way

The regulatory arena also is rife with uncertainties.

The U.S. Toxic Mold Safety and Protection Act ("The Melina Bill") was introduced earlier this year and is in committee. The bill, at least in its present form, would not specifically establish exposure limits or testing and remediation standards. Rather, the bill would direct the Environmental Protection Administration and other governmental agencies by July 2003 to report on their progress in developing exposure limits and to develop assessment and remediation guidelines.

There has been activity at the state level, too. In January 2002, the California Toxic Mold Protection Act took effect. The act is intended to lead to the establishment of standards for mold exposure limits, assessment and remediation. Similar legislation is being considered in other states, including New York and Massachusetts.

Some municipalities have taken action. A recent San Francisco ordinance deems mold a public nuisance that must be abated. The New York City Department of Health has set standards relating to assessment and remediation. Although the standards do not identify exactly what constitutes excessive mold, they do identify testing protocols (in most situations requiring surface as opposed to air sampling) and set standards for remediation depending on the severity of the mold growth

What to Do in Light of This Uncertainty?

It is tempting, in the face of all of this uncertainty, to simply do nothing about the risk of mold claims. However, given that practically anyone in the construction industry may at some point face a mold-related claim, prudence dictates that proactive steps be considered, including the following.

Insurance. A key question is whether or not existing policies provide coverage for mold-related claims. It is prudent to review existing policies, including general liability policies, and assess the probability that they will provide adequate coverage for mold-related claims. Depending upon the magnitude of the risk, it may be necessary to consider special riders or endorsements removing exclusions potentially precluding coverage for mold-related claims or to consider obtaining environmental coverage policies specifically providing coverage for mold-related claims.

Contract Provisions. Parties also can attempt to allocate by contract the risks associated with mold. For instance, construction contracts and real estate leases may include indemnity language specifically intended to allocate liability for mold-related personal injury claims, includes representations and/or warranties concerning the absence of mold, and identify the party responsible for identifying and remediating mold. Thus, any party entering into a real estate, construction or other kind of contract concerning real property should consider whether or not the risk of future mold claims and remediation should be allocated by contract and, if so, how. In real estate transactions, parties also should take note of any disclosure rules that might pertain to mold (for example, California is developing real estate disclosure standards pursuant to the Toxic Mold Prevention Act).

Procedures for Inspection, Testing and Disclosure. In the absence of clear government or industry standards, it is difficult to develop internal procedures relating to mold. Nonetheless, developing some basic procedures may reduce exposure to mold claims or, in the event such claims are brought, assist in the defense of such claims by showing that the company acted proactively and reasonably.

First, procedures can be developed for inspecting for mold or conditions that could lead to mold, both during construction and occupancy. It may be prudent to have on retainer engineers or industrial hygienists who may be called upon on short notice to assess conditions on the property. If mold is identified, procedures also should call for identifying the source of the moisture.

Second, testing and remediation protocols should be considered. This may be as simple as ensuring that mold growth is promptly reported and then promptly tested by a competent professional. Other affected parties might be invited to participate in this process. Depending on the circumstances, it may be appropriate to involve legal counsel.

Third, and perhaps most important, procedures should be developed to disclose mold conditions to those potentially affected, such as tenants or employees. Because the length of exposure is the key to many mold claims, procedures should be developed to communicate about the existence of excessive mold in a clear, accurate and timely manner to all those affected.

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For more information about the issues covered in this report, please contact Anthony J. Barron in our San Francisco office at 415-369-7221 or at ajbarron@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.





©2002 Thelen Reid Brown Raysman & Steiner LLP